prev

Mind Your Business

“Money, not morality, is the principle of commercial nations.”

-Thomas Jefferson

 

That’s the opening quote to chapter 7, “The Birth of The Dollar”, in Jack Weatherford’s economic history classic The History of Money. We study history so that we can attempt to contextualize the madness of the moment in which we are living. Watching Bernanke debauch the value of the American People’s money is obviously immoral – but who cares?

 

Morals? This isn’t about morals. This is about getting paid. And for political types, since the speech circuit pay-wheels have already been greased for life, you only get paid by politicians if you can spin. Storytelling that this recent 4-day drop in the US stock market is “all about Congress” is paramount to the unaccountable @FederalReserve’s fiction.

 

That’s the short-run. In the long run, most politically conflicted narratives are dead. We’re a long way removed from 1787 (1st issuance of coins in the United States) when “copper coins bore the motto “Mind Your Business” (Weatherford, pg 119).” But my business  of protecting against the loss of your capital to poorly timed policy decisions remains.

 

Back to the Global Macro Grind

 

My business adheres to a rule that Warren Buffett used to uphold as “Rule #1” of investing (before he went all chuckles @CNBC and pro government socialization of his P&L’s risk on us): “Don’t lose money.”

 

In order for we commoners who don’t get insider and government “preferred” investment terms to execute on this rule, we need to let Mr. Market tell us what to do next.

 

As of this morning, the most obvious of the new obvious in our Correlation Risk model is the US Dollar moving to an immediate-term correlation versus bond yields of almost 1.0 (US Dollar Index 3-week correlation to US 10yr Treasury Yield = +0.98).

 

What does that mean?

  1. Bernanke’s causal impact on the value of American Purchasing Power (US Dollar) is massive
  2. There’s an explicit link between US currency and bond yields in the face of policy information surprise
  3. When moving in tandem, US Dollars and Bond Yields are coincident (leading) US growth indicators

I realize that this isn’t the framework you are going to read from Morgan Stanley this morning. And that’s precisely why our contrarian bull case on US Growth was right this year. Consensus economists and market strategists don’t use our framework.

 

To review our (and world history’s) account of mapping economic gravity:

  1. When a country’s currency is rising alongside its country’s interest rates = #GrowthAccelerating signal
  2. When a country’s currency is falling alongside its country’s interest rates = #GrowthSlowing signal

To be clear, a signal can whip around and change direction more often than you can remain solvent trying to trade every move. But the intermediate-term TREND signals don’t lie nearly as often as the Fed’s forecasts do.

 

This is why we overlay our A) fundamental research with B) a quantitative risk management signal that is multi-duration and multi-factor. Since I never know what Mr. Market is going to start signaling as risk, I just need to wait and watch for trending signals.

 

Now some might say that doesn’t make sense because the trends can change. But that is precisely the power of the process. As policies, prices, correlations, etc. change - we do. The alternative strategy is dogmatic naval gazing about what “should” happen.

 

In summary, what’s “new” in our model as of the last week?

  1. US DOLLAR: our intermediate-term TREND line of $81.35 broke on Bernanke’s decision to break it
  2. US 10YR TREASURY YIELD: our immediate-term TRADE line of 2.79% broke; and TREND support of 2.55% is under attack

Since the #1 Style Factor leading market performance in 2013 YTD = LONG GROWTH, this very immediate-term information surprise to the market on both the US Dollar and Bond Yields matters, big time. Why? Because, unlike the Fed’s marked-to-model dogma of 0% interest rates on the short end of the curve, US growth expectations are marked-to-market.

 

One other way to consider Mr. Market’s current #GrowthSlowing message within this Down Dollar, Rates Down move was in yesterday’s US stock market sub-sector divergences. The Financials (XLF) led losers on the day (-0.6%). The why on that isn’t that complicated to follow – as long-term rates fall, the leading indicator for the Financials (Yield Spread) compresses.

 

Since Larry Summers was eliminated as a prospective Fed head (his policy would have been more hawkish = #StrongDollar, #RatesRising), the Yield Spread (10yr minus 2yr yield) has compressed by -8.5% to +229 basis points wide. That’s not a point of difference between Bernanke and my definition of morality; that’s just going to eat into the principle of profits.

 

Our immediate-term Risk Ranges are now as follows (we have 12 Global Macro ranges in our Daily Trading Range product too):

 

UST 10yr Yield 2.61-2.79%

SPX 1

Nikkei 144

VIX 12.95-14.98

USD 80.24-81.34

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Mind Your Business - Chart of the Day

 

Mind Your Business - Virtual Portfolio


September 25, 2013

September 25, 2013 - dtr

 

BULLISH TRENDS

September 25, 2013 - 10yr

September 25, 2013 - spx

September 25, 2013 - ftse

September 25, 2013 - nik

September 25, 2013 - euro

September 25, 2013 - oil

 

BEARISH TRENDS

September 25, 2013 - VIX

September 25, 2013 - dxy

September 25, 2013 - yen

September 25, 2013 - natgas
September 25, 2013 - gold

September 25, 2013 - copper


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 25, 2013


As we look at today's setup for the S&P 500, the range is 21 points or 0.85% downside to 1683 and 0.39% upside to 1704.                         

                                                                                                      

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.30 from 2.33
  • VIX closed at 14.08 1 day percent change of -1.61%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Sept. 20 (prior 11.2%)
  • 8:30am: Durable Goods, Aug., est. -0.2% (prior -7.3%)
  • 10am: New Home Sales, Aug., est. 420k (prior 394k)
  • 10am: Household Change in Net Worth, 2Q (prior $3.003T)
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to purchase $2.75b-$3.5b in 2020-2023 sector
  • 1pm: U.S. to sell $35b 5Y notes
  • 6pm: Fed’s Dudley gives remarks at “Fed at 100” Exhibit

GOVERNMENT:

    • Senate holds cloture vote on continuing resolution to keep government funded as Sen. Ted Cruz, R-Texas, engages in marathon speech against Obamacare
    • 8:45am: Sec. of State John Kerry meets French Foreign Minister Laurent Fabius; 12:40pm: UN Security Council
    • 10:30am: MGM Resorts CEO Jim Murren at media briefing on co.’s plan to develop resort in Prince George’s County, Md.
    • 2pm: Goldman CEO Blankfein at Clinton Global Init. in NYC
    • 2:30pm: Sens. Dianne Feinstein, D-Calif., Chuck Grassley, R-Iowa, attend Senate Caucus on Intl Narcotics Control hearing on dangers of synthetic drugs

WHAT TO WATCH:

  • JPMorgan said in talks to settle U.S. mortgage-bond probe
  • Noble sees splitting in two to focus on deepwater rigs
  • Alibaba IPO talks with Hong Kong said to break down; U.S. listing possible
  • New York Life to buy Dexia Asset Management for $512m
  • ICAP staff may face criminal charges in Libor case, WSJ says
  • Amazon unveils faster, pricier Kindle Fires to take on Apple
  • Federal trial against BofA’s Countrywide unit begins
  • Medical-device makers see EU rules slowing U.S. approvals
  • U.S. probing 16 financial institutions over RMBS, firm says
  • China Beige Book shows slowdown in contrast with data
  • Big banks had $155b Basel capital shortfall at end 2012
  • Royal Caribbean considers Oslo delisting, Finansavisen reports

EARNINGS:

    • AGF Management (AGF/B CN) 8am, $0.13
    • AutoZone (AZO) 7am, $10.34
    • Bed Bath & Beyond (BBBY) 4:15pm, $1.15 - Preview
    • HB Fuller (FUL) Aft-mkt, $0.67
    • Jabil Circuit (JBL) 4:02pm, $0.54
    • Progress Software (PRGS) 4:15pm, $0.24
    • Synnex (SNX) 4:05pm, $0.94
    • Worthington Industries (WOR) 8:30am, $0.58

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Rusal Urges LME to Delay Rule Changes on Warehouse Withdrawals
  • Rattlesnake Frontier Answers Brazil’s Land Shortage: Commodities
  • WTI Crude Snaps Four-Day Loss on Forecast U.S. Stockpiles Shrank
  • Copper Rises Before Report Seen Showing Higher U.S. House Sales
  • Soybeans Climb as Midwest Rains Seen Too Late to Improve Crop
  • Indonesia Seen Avoiding Complete Ore Export Ban to Save Jobs
  • Gold Swings as Investors Weigh Stimulus Against Budget Talks
  • Palm Oil Drops to One-Month Low as Production Boosts Stockpiles
  • U.S. Carmakers’ Aluminum Usage Seen by Novelis Outpacing Europe
  • Chinese Metal Demand Rising or Falling? Data Tell Both Stories
  • Thai Gold Buyer Doubles Imports After Bear Slump: Southeast Asia
  • Paris Wheat Seen Falling on Fibonacci Breach: Technical Analysis
  • Iron Ore Seen Supported by Morgan Stanley as Citi Is Bearish
  • Rubber Declines to One-Week Low as Chinese Demand May Weaken

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

THE M3: NEW MAINLAND TOURISM LAW; DROP IN S'PORE LOCALS; MID-AUTUMN TOURISTS

THE MACAU METRO MONITOR, SEPTEMBER 25, 2013

 

 

NEW RULES TO BRING A 50% DROP IN MAINLAND TOURIST GROUPS Macau Daily Times

A new Mainland tourism law could result in a 50% drop in the number of tourist groups in October.  According to Max Lau, head of the Macau Travel Agency Association, the new law will steer tourists towards “rational consumption”.  “Prices of tourist groups will increase according to the new law.  Tourists will gradually find that what they paid in the past was not the real cost of the trip.” 

 

Article 35 of the new tourism law prohibits China’s domestic travel agencies from “organizing tourism activities and luring tourists with unreasonably low prices, which is estimated to cause the previously under-market package rate to surge instantly.”  Furthermore, Chinese travel agencies shall not “designate specific shopping places, or provide tourism services that require additional payment.” 

 

FEWER LOCALS VISIT THE CASINOS: ONLY 7.7% MADE MORE THAN ONE VISIT IN PAST 3 YEARS Strait Times

According to the Casino Regulatory Authority (CRA) in Singapore, only 7.7% of locals here made more than one visit to the two casinos here in the past three years.  CRA said that the vast majority of the remaining 92.3% did not visit the casinos at all.

 

The total number of visits to the casinos by Singaporeans and permanent residents has also dropped, in a sign that the novelty factor could be wearing off, said CRA's president Richard Magnus.

 

They made a daily average of 17,000 visits last year, down from 20,000 visits when the casinos first opened in 2010.  CRA also attributed the drop in the number of casino visits to the effectiveness of its safeguards in deterring vulnerable individuals from problem gambling.

 

LESS TOURISTS DURING MID-AUTUMN FESTIVAL  Macau Daily Times
According to the Public Security Police Force (PSP), visitors to Macau during the mid-autumn festival recorded a decrease of 6.74% YoY or 470,000 visitors.  From September 19 to 22, a total of 729,614 arrivals was recorded through seven immigration checkpoints: namely Border Gate, Lotus Bridge, Outer Harbor Ferry Terminal, Inner Harbor Wharf, Macau International Airport, Cross-border Industrial Zone and Taipa Temporary Ferry Terminal.  

 


Neutral: SP500 Levels, Refreshed

Takeaway: Why buy a market that was overbought for the wrong reasons (Fed randomly devaluing the Dollar) when it’s not yet oversold?

This note was originally published September 24, 2013 at 10:42 in Macro

POSITION: 5 LONGS, 5 SHORTS @Hedgeye

 

I don’t know about you, but ever since Bernanke moved the goal posts again, I have no idea what to do. Whenever that happens, I take down both my gross and net exposure.

 

Across our core risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE overbought = 1725
  2. Immediate-term TRADE support = 1682
  3. Intermediate-term TREND support = 1655

 

In other words, why buy a market that was overbought for the wrong reasons (Fed randomly devaluing the Dollar) when it’s not yet oversold? You could have bought all your wanted with the SP500 at 1630 in AUG – and we did.

 

Not here – not now. No thanks, Ben.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Neutral: SP500 Levels, Refreshed - muck


Twitter: Are You Following the SEC?

Takeaway: We urge you to follow SEC Investor Education, if only to see how the Commission is positioning itself.

While it continues to not make headlines, the SEC has put out some important alerts over Twitter under Investor Education (@SEC_Investor_Ed).  For reasons we can only speculate on (investor apathy? willingness to be bamboozled?) the Commission’s education twitter handle only has 37,000 followers – far less than the number of individual investors who are routinely harmed by market fraud in the course of a year. 

 

And since we follow them, and we know most other compliance professionals do as well, we speculate that the number of actual retail investors looking to the Agency for information remains pitifully small.

 

Twitter: Are You Following the SEC? - twit2

 

This is a mistake. 

 

The SEC is coming off a bad patch, to put it mildly.  But it appears to be actually moving towards much more robust action on the behalf of market integrity.  The SEC’s Twitter stream tells you what they are working on right now, tells you what the Commission thinks is important right now. 

 

Earlier today, the SEC tweeted an alert titled “Federal Regulators Issue Guidance On Reporting Financial Abuse Of Older Adults” saying “recent studies suggest that financial exploitation is the most common form of elder abuse and that only a small fraction of incidents is reported.” 

 

The most common form of abuse.  That’s pretty striking. 

 

Let’s not sugar coat this: we have all been lulled into a sense of helplessness by generations of academic economists insisting that People Always Act In Their Own Self Interest.  The big problem with that proposition is that most people have no idea what their actual interests are.  Instead, people generally act on impulse.  Even for those who give some thought to their actions, “planning” usually boils down to “we’ll set up a diversified portfolio… a little of this… a little of that…”  You actually paid someone to do that with your money?  C’mon, America. Time to get serious.

 

The combination of fear about not having set enough aside for retirement, plus trepidation over being left to one’s own devices – plus, as the Alert points out, “cognitive decline” which leads to poorer than average decision making – makes older folks sitting ducks for scam artists.

 

This brief Alert says “employees of financial institutions may be able to spot irregular transactions or behavior that signals financial abuse,” and that these employees “can play a key role in preventing and detecting elder financial exploitation by reporting suspicious activities.”  We think this could be a significant opening wedge for the Commission to start holding financial firms responsible for elder fraud committed by third parties.

 

Fraudsters don’t always register with the financial authorities.  But stockbrokers and advisers do.  The umbrella regulatory organization for the financial services industry, FINRA, issued guidance for its members in 2010.  If you are concerned that you, or someone you know, may be vulnerable, you may want to start by seeing what FINRA wants its members to do by way of guarding against elder fraud. 

 

FINRA’s head of investor education testified last year before the Senate Special Committee on Aging that the Authority considers protection of elderly investors a high priority.  In light of today’s Alert, we wouldn’t be surprised to see a new FINRA release in the coming months reminding members of their duty to provide special care in their dealings with the elderly.

 

But how can this help you – or your aging parents? 

 

FINRA has the authority to hold a broker responsible for activity in an investment account, even if the broker doesn’t manage the account.  Brokerage firms have a duty to ensure that transactions are Suitable for the individual customer, and investors who manage their own money have been able to recover losses if the firm was deemed not to have exercised due care by permitting them to trade excessively or to make unsuitable investments. 

 

One common form of fraud is for stock promoters to induce gullible investors to buy large blocks of worthless stocks.  These transactions are done as “unsolicited trades” in the victim’s brokerage account.  If they are unsuitable (almost always a sure bet), FINRA has the power to hold the brokerage firm liable, even if they had nothing to do with promoting the stock.

 

Consumer advocates have long complained that the deck is stacked overwhelmingly against the individual investor.  But note that today’s Twitter release represents regulatory guidance on behalf of seven federal agencies.  One of them is the new Consumer Financial Protection Bureau.  And at least two of the others – the SEC and the Comptroller of the Currency – have failed miserably in recent years and need to make headlines going forward.

 

Twitter: Are You Following the SEC? - twit1

 

We urge you to follow SEC Investor Education, if only to see how the Commission is positioning itself.  Many of us have a cynical view of the Commission.  But you get nothin’ for nothin’.  If you think your concerns are important, you need to make your voice heard.  The SEC routinely opens up new rule proposals for public comment, yet rules that have the potential to affect millions of private investors are often commented on overwhelmingly by major financial institutions – whose interests are often better served by the status quo than by proposed regulatory changes. 

 

The Commission can only respond to your concerns if it hears them.  Get with the program. 

 

By Moshe Silver

 

Moshe Silver is a Managing Director at Hedgeye Risk Management and author of Fixing a Broken Wall Street.


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next